This site is operated by a business or businesses owned by Informa PLC and all copyright resides with them. Informa PLC's registered office is 5 Howick Place, London SW1P 1WG. Registered in England and Wales. Number 8860726.

The tire gamble

Buying a new truck tire is not much of a gamble. At least not right off the bat. They're plenty of established brands to pick from, all of which hold air and hold up. But over the long haul, fleet managers fixed on price alone all may well gamble away the value in their tire investment. Fleet should not to get caught up in a shell game of their own making. Tire value can get lost in the shuffle if

DAVID CULLEN, EXECUTIVE EDITOR | Sep 01, 2004

Buying a new truck tire is not much of a gamble. At least not right off the bat. They're plenty of established brands to pick from, all of which hold air and hold up.

But over the long haul, fleet managers fixed on price alone all may well gamble away the value in their tire investment.

Fleet should not to get caught up in a shell game of their own making. Tire value can get lost in the shuffle if fleet buyers don't pay adequate attention to where their tires are coming from. Fleets may also leave money on the table not through any sleight of hand, but just because they are not clued in fully on how truck tires are marketed.

All this deserves to be under a ‘scope right now because new truck tires — never cheap to begin with — are becoming ever more expensive as the cost of the raw materials required to build them continues to escalate.

Back in May, for example, both Bridgestone/Firestone North America LLC (BS/FS) and Michelin North America announced tire price hikes, which they attributed to higher commodity prices, including steel and rubber. This year Michelin also announced an increase in its tire retreading pricing thanks to rising rubber costs.

Of course, tire value does not begin and end with the purchase price. Original miles to removal are a crucial measure of tire performance as is retreadability or the number of caps attained per casing.

Yet ensuring that tire value is never gambled away to ignorance if not malfeasance is a matter of knowing what goes into the tire and who will back it up after the sale.

To be the best-informed tire buyers they possibly can, fleet managers should forget about scoring on deals “too good to be true.”

Instead, the focus should be on three key factors influencing how truck tires get sold. These are the so-called gray market (which can afflict all tire suppliers and buyers); the tiered brand strategy followed by major truck tire players; and the recent arrival of very cheap and very unknown “no-brand” truck tires, often from far-away manufacturers.

The gray market is a perennial problem that doesn't get much press outside the confines of tire makers and their dealers. Ending up with “gray” tires may not hurt a fleet directly but it can negatively impact their impression of a tire supplier. And in the end, that could cheat both the tire maker and the customer out of a worthwhile business relationship.

There are really two subsets to the tire gray market as it relates to trucking. Like other goods that end up in the gray market (most notably consumer electronics), a tire falls into this category when it ends up being sold in a market other than the one for which it was originally manufactured.

So, we're talking about a tire engineered for use in Europe or Asia or even Latin America that ends up running on U.S. roads. Now, these tires more than likely will carry a U.S. DOT number — because manufacturers the world over seek to meet that quality standard — so they will be protected by a maker's original warranty.

RUNNING A RISK

What someone who winds up running such a tire risks is not getting the full measure of performance they'd get from a product designed for U.S. vehicles, loads and roads.

The second type of gray market tire is the domestic variety. These are tires sold off while still new by the original purchaser, which for example, might be a fleet that bought too many. Such tires are also protected by original warranties. But tire makers, naturally enough, discourage this type of sale, which they regard as double-dipping.

According to the Alliance for Gray Market and Counterfeit Abatement (AGMA), the gray market is “the unauthorized sale of new, branded products diverted from authorized distribution channels or imported into a country for sale without the consent or knowledge of the manufacturer. It is the unauthorized sale or improper diversion of new products obtained under deceptive circumstances. This would mean new, branded products being diverted from authorized distribution channels or imported into another country without permission of the original manufacturer.”

AGMA says that gray market products are “shopped” globally and move multiple times before reaching an end user. The group notes tactics that foster gray marketing include abuse of discount programs and fraudulent or falsified contracts. Other untoward practices include over-ordering on valid accounts with discounts and selling those products in a manner not permitted by contracts or the terms and conditions of a program. Inappropriate disposal of excess or obsolete inventories also feed the gray market.

Speaking at BS/FS's annual truck-tire dealer meeting this Spring, Singh Ahluwalia, president for commercial products, stated that “rising gray market activity is a major concern.” He challenged the company's dealer body to “do the right thing and help stop this cancer.”

Not everyone views the gray market so starkly. Marc Laferriere, vp-marketing for Michelin America Truck Tires, says gray market tires “have always existed and are heavily dependent on the currency [exchange]. I don't believe they are more of an issue to North American tire makers.”

STEER CLEAR

Nonetheless, Laferriere does recommend steering clear of gray market tires — and emphasizes the value of relying only on reputable suppliers. “In order to make sure a fleet obtains the best before-sale recommendations and after-sale service, they should make sure they know the entire supply chain for each component they purchase,” he remarks.

“Working with the people that have the most to gain for the long term is good policy,” Laferriere adds. “The short-term deals often mean taking additional risks on tire warranty and retreadability. A good track record is worth a lot.”

Art Campagnoni, director of North American commercial sales for BS/FS, says that gray market tires bubble to the surface from a number of sources, including cross-border shipments and even national fleet account programs. He says gray market activity, whether by dealer store or fleet customer, will not be tolerated by Bridgestone/Firestone.

There are tires brought into the U.S. from Canada and sold here at $25 to $75 below regular retail because importers of record do not report excise tax. “These could be brought in by a dishonest broker,” Tucker notes, “someone who'd cross the border with new tires hidden in the back of a trailer by some used casings in the front.”

Then there are the tires people go through all the trouble of sending here from beyond the sea. “No matter where it comes from,” says Tucker, “if the tire carries a U.S. DOT number on it, it will be considered legally tendered in the U.S. and warranted by its manufacturer. While the buyers of such tires will be protected by warranty, they will run the risk of operating tires that were not engineered for our roads, loads, vehicles and climate.”

MADE FOR HIRE

Cliff Armstrong, director commercial marketing for Continental Tire North America Inc., concurs that tire design varies enough across markets that “we really recommend not using tires here that were not designed for the U.S. We build tires, right down to their compounding, for the specific applications of each market.”

While the U.S. DOT number is respected as signifying a quality tire around the world, Goodyear doesn't use it universally. “There are specific tires we make in Europe for the conditions found in that market that we do not want to see end up here so we don't produce them with DOT numbers,” says Tucker. “That dries up that source — those tires can't legally be here.”

BS/FS's Campagnoni says that no matter a tire's origin, it is “hard for a manufacturer to walk away from the warranty on a tire with a DOT number on it.”

Campagnoni notes that “double-dipping” occurs when a fleet customer sells tires it purchased on a national account discount to a dealer who then resells them.

“We are doing our part to thwart this,” he points out. “Our national account agreements expressly forbid these customers from reselling our tires, and it is also understood within the BS/FS dealer network.”

ACTION TAKEN

Campagnoni states that BS/FS has gone so far as to take action against dealers and to cancel business with some fleets over double-dipping. “We actively and consistently work to eradicate this practice because if it is allowed to grow out of control, everyone's marketing plan goes out the window.”

As for unauthorized tires coming in from overseas, Campagnoni doesn't regard it as a big issue at the moment. “But for that to happen,” he points out, “there has to be some chicanery involved to get the price low enough to make it worth the trouble. At any rate, we as manufacturers do not want this going on. To have no sort of gray market going on makes for a better marketplace.”

Not only are there many tire brands to select from, there is a plethora of dealers, independent as well as a company-owned shops, from which to get them.

Goodyear's Tucker says “don't overlook the whole support structure” when selecting tires by brand. He says Tier 1 and Tier 2 suppliers will offer the most support via the “infrastructure” of their well-established dealer networks.

“Our commercial dealers buy direct from Goodyear,” Tucker continues, “but they can also sell any other brand of their choice. That's why our field associates offer support to our dealers.”

Michelin's Laferriere advises making sure “you know and trust the dealer and the manufacturer. Do they know your fleet or operation well enough to make the most informed recommendation? Will they be there next month, next year to stand behind their product and services?”

“No-Names”

Surely no one would argue there aren't enough truck tire brands to choose from in this market. There are at least 20 well-established brands of new and/or replacement tires not to mention six retread brands vying for the business of U.S. fleet operators. All of these tires have OEM and dealer support behind them and have been engineered to match specific North American applications (see pg. 38).

So why on earth would anyone think of buying a tire branded with a trade name no one ever heard of? Probably because they were seduced by purchase price alone.

If such no-brand tires carry a DOT number, they have indeed met government standards. But they are unlikely to have anywhere near the engineering resources pumped into them that make name-brand tires a dependable long-term value for fleet operators.

In other words, we are not talking counterfeit or substandard tires here. But we are also not talking about state of the art rubber, either. It really boils down to getting what you pay for.

LONG RUN

Continental's Armstrong says there is “low-priced product coming in from China and elsewhere.” He figures that cheap product may be “tempting” but in the end “ultimately what is important to the fleet is the revenue cycle” of hauling freight. “It is better in the long run for the fleet to partner with an established dealer and the supplier backing up that dealer.”

He also makes a sanguine point. “A concern [about cheap tires] I would have as a fleet manager would be any liability from using what might be regarded as a less than premium product” in a court of law.

“It's not that an import might not be a good product,” he adds. “It is more a question of backup. Many fleets would not consider buying any product that would not be backed up by the manufacturer.”

BS/FS's Campagnoni says “off-brand or no-brand tires are not generally as retreadable as premium brands; the quality is not up to that of Tier 1 or Tier 2 products.

“We think the way to sell tires is through their cost-effectiveness,” he states. “No matter the source, fleets should ask how cost-effective is the tire they are considering” over the long haul. “Our intent,” he adds, “is always to see fleet buyers view tires by their cost effectiveness.”

“Major brands still represents the majority of sales for commercial truck tires in the U.S. today,” points out Michelin's Laferriere. “Most fleets have substantial experience with tires and tire performance, and will make their purchasing decisions based on facts and cost-per-mile information.

“These fleets will select a specific brand and a specific tread design,” he continues. “These same fleets are less likely to choose no-name tires.”

“Tires are an investment and an important piece of any trucking operation. There's a classic line that holds true: You get what you pay for,” he remarks.

Goodyear's Tucker offers another reason to avoid no-name tires. “Under the [upcoming] TREAD Act, direct importers of tires, such as from China, will be responsible for reporting certain failure-related information to the U.S. government. That reporting responsibility will increase over time. But none of this will apply to those who purchase tires from Tier 1 or Tier 2 tire makers or their dealers.”

Tier By Tier

There's nothing underhanded about the branding tier strategies the top four truck tire suppliers follow in the U.S. Each player is quite willing to explain how they play this hand.

But many fleet managers are not aware of why these manufacturers field different brands and what the differences may be between brands marketed by the same company. Depending on who you talk to, there are anywhere from three to four tiers of quality in today's truck tire market.

For example, according to Michelin's Laferriere, the company's two U.S. truck tire brands are aimed at two different sets of buyers. He explains the brand strategy this way: “Michelin tires [Tier 1] offer the lowest total tire cost per mile, the most innovative solutions, and the most advanced technologies. BFGoodrich tires [Tier 2] provide great value and great quality at an affordable original purchase price.” Again, the more you pay the more you get.

Goodyear's Tucker sees three tiers in the marketplace. “Tier 1 means the premium players, including Goodyear. Then there are Tier 2 tires, such as our own Kelly Springfield and Dunlop brands. Tier 3 covers the imports from Asian and, in some cases, Latin American manufacturers.”

STRATEGY

BS/FS, according to Campagnoni, pursues a three-tier strategy. “Bridgestone is our Tier 1 national-account fleet brand and is also sold by dealers to fleets. Firestone is our Tier 2, aimed at small- to medium-sized fleets that do not require a national purchasing program. And in Tier 3 we place Dayton, which is more limited in scope so it appeals more to local and regional fleets.

“We have a three-brand strategy,” he continues, “and our goal is to grow all three, not any one at the expense of another. These brands are really aimed at three different sets of customers. There is naturally some overlap, especially with non-national fleets choosing to run Bridgestone.”

While tires marketed in whichever tier are all good products, Goodyear's Tucker considers durability, miles to removal, eveness of wear and retreadability rather than customer type or price point key distinguishing features.

“Retreadability will have the highest value in Tier 1 — that's why the casings of these tires are valued the most highly.” He explains. “By comparison, a Tier 2 will not deliver the same number of retreads per casing.” He says another distinguishing tier characteristic at Goodyear is technology. “Our latest technological advancements will appear first in our Goodyear brand products.”

Tucker points out that major tire manufacturers offer brands across two or more tiers to be able to serve the greatest possible number of buyers. “Our customers range from over-the-road national accounts to local haulers and vocational truckers, all of whom need tires with different capabilities, which are sold at different price points.”

“Continental is our worldwide Tier 1 product,” says Armstrong. “For North America, we also market the General brand, which has been here for 90 years. We slot it as the upper end of Tier 2 as our value brand.”

Armstrong notes that Germany's Continental had purchased General Tire back in 1987 “but it took a long time to really bring the brands together” under one marketing approach. “In 2003, we rolled out seven new Continental products including the first exclusively designed for use in North America.”

Dealer smarts

BACKUP

He also points out that “Michelin works very closely with fleet customers to ensure that when they purchase Michelin tires, they get the expertise and business experience that we bring with the product.

“With our customers,” Laferriere continues, “we strongly believe that it doesn't end at the point of sale. Our sales force can help the fleet manager track total tire costs (purchase price, maintenance, fuel economy, driver satisfaction, retreadability) and help set up comparisons with other alternatives. To be successful,” he adds, “we must help our fleets achieve as much success as possible.”

POINTERS

Continental's Armstrong suggests a number of pointers fleet managers should keep in mind when assessing the value proposition offered by different tire suppliers:

What is the opportunity to buy the brand on the road — how extensive is the dealer network; are the tires available truckstops or repair outlets?

If a national account customer, is the billing cycle in line with what the fleet needs?

What are the warranty terms — and what is the level of responsiveness of the company?

Field support — how extensive is it?

Campagnoni of BS/FS recommends that when selecting a tire dealer, “fleets look for an operation that sells quality tires sand supports them with innovative systems that go beyond the sale to help reduce their tire maintenance costs.”

“Fleet managers are well informed buyers,” says Michelin's Laferriere. “Tires are a very important part of their overall operating costs. It is normal and expected that such professionals would always be looking for better value.

“The tire manufacturer that can offer the fleet the best value and the lowest cost per mile should get the business — and will get the business,” adds Laferriere.

Take your pick on how to buy tires — gamble on price or seek out value. Just remember the more you know how the game's played, the better the chances you'll like the outcome.